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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 15, 1999
THE PMI GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-13664 94-3199675
(State of Incorporation) (Commission File Number) (IRS Employer
Identification Number)
601 MONTGOMERY STREET, SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (415) 788-7878
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(Former name or former address, if changed since last report.)
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Item 5. Other Events
Fannie Mae and Freddie Mac are permitted by statute to purchase conventional
high loan to value ratio (LTV) mortgages from lenders who obtain mortgage
insurance on those loans. Fannie Mae and Freddie Mac have the discretion to
reduce the amount of private mortgage insurance they require on loans.
Fannie Mae issued a press release on January 15, 1999 announcing the expansion
of available mortgage insurance ("MI") options reducing the amount of MI
required on loans purchased by Fannie Mae.
Fannie Mae has stated the new MI options will be available in early March. These
new options will be available only to borrowers recommended for approval by
Fannie Mae's automated loan underwriting system, Desktop Underwriter.
The new MI options to be offered by Fannie Mae include:
. Across-the-board reductions in Fannie Mae's required MI coverage on 30-year
fixed-rate loans recommended for approval by Desktop Underwriter to the
levels in effect in 1994.
Currently, Fannie Mae requires that loans with only a 5 percent down
payment (a 95 percent LTV) have 30 percent of the mortgage loan covered by
MI. This will be reduced to 25 percent under the new initiative, the same
level as was required in 1994. Required coverage for a loan with a 10
percent down payment (a 90 percent LTV loan) will be reduced from 25
percent to 17 percent, the same level as was required in 1994.
. An option that reduces MI costs even further, when combined with an
additional payment.
Under this option, for a loan with a 5 percent down payment (95 percent
LTV), the minimum mortgage insurance coverage will be 18 percent of the
mortgage loan; for a loan with 10 percent down (90 percent LTV), the
minimum coverage will be 12 percent of the loan.
In order for the home buyer to have MI at this level, these loans would
require a payment at closing or a higher note rate.
Fannie Mae intends to purchase additional insurance coverage on loans using
this option.
. Flexible 97 Expansion
Fannie Mae will buy additional MI coverage on its Flexible 97 loans from
mortgage insurance companies following its purchase of the loans.
. Fannie Mae has purchased and will continue to purchase mortgage insurance
for 90 percent LTV loans on investor-owned property when combined with a
higher note rate.
This option applies only to 10 percent down payment (90 percent LTV) loans
on investor-owned property.
It is anticipated that Freddie Mac will offer similar reductions of required MI
coverage on loans it purchases.
Because of the numerous aspects of the mortgage insurance industry that will be
affected by Fannie Mae's and/or Freddie Mac's reduction in required MI coverage
levels, the Company is presently not able to ascertain the full impact of such
initiatives on the Company's financial condition and results of operations in
1999 and beyond. The Company believes that the reduction in the level of
required MI insurance coverage will cause a reduction in its premiums, cash flow
and related investment income, in 1999. It is too early to estimate the impact
on 1999 earnings. It is possible that the reduction in required MI coverage
could have a material adverse impact on the Company's financial condition and
results of operations.
The statements in this filing that are not historical facts, and that relate to
future plans, events or performance are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve a number of risks or uncertainties including, but not
limited to, the factors listed below that could adversely affect the Company's
actual results.
Factors that may materially and adversely impact PMI's results of operations,
earnings, and financial condition include the size of the mortgage origination
market, mortgage insurance industry volumes of new business, greater than
anticipated policy cancellations or lower than projected persistency resulting
in declines in insurance in force, the failure of mortgage insurance commitments
to convert into new insurance written, the impact of competitive underwriting
criteria, products including pool insurance and risk sharing structured
transactions, regulatory responses to product offerings, changes in the
performance of financial markets, PMI Mortgage Insurance Co.'s claims-paying
ability rating, the demand for and the acceptance of mortgage insurance
products, decreased profit margins on mortgage insurance products, the impact of
expanded financial remedies provided to contract underwriting customers, changes
in government regulations or interpretations regarding the Real Estate
Settlement Procedures Act, changes in statutory charters, regulations and
coverage requirements of Fannie Mae, Freddie Mac, banks and savings
institutions, and customer consolidation.
A number of other factors affecting PMI and the mortgage industry in general
could cause claims on policies issued to increase and this could materially
adversely affect PMI's financial condition and results of operations. Management
believes that loss experience could be materially and adversely affected by
economic recessions, declining housing values, higher unemployment rates,
deteriorating borrower credit, increases in the rate of borrower defaults,
rising interest rates, increases in refinance activity caused by declining
interest rates, legislation impacting borrowers' rights or a combination of such
factors, which might have nationwide impact or a disproportionate impact on
regional economic conditions and demand for housing generally. In addition,
contract underwriting is now the principal means by which mortgage insurance is
obtained, and is subject to numerous risks and uncertainties, including
availability of qualified personnel, price competition, and timely development
of computer systems needed to process the increased volume of contract
underwriting activity. The inability to remain competitive in providing contract
underwriting may materially and adversely impact PMI's results of operations and
financial condition. Also, other risk factors listed from time to time in The
PMI Group, Inc.'s Securities and Exchange Commission filings may materially and
adversely impact its financial condition and results of operations.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The PMI Group, Inc.
(Registrant)
January 19, 1999 By: /s/ John Lorenzen
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John Lorenzen
Executive Vice President &
Chief Financial Officer
